Why is there little interest in new underseas cables in NZ?

, posted: 5-Jun-2008 11:26

Another /gripe.

Telecom and their partners spent around $1.3billion building the Southern Cross cable. Their bank debt was repaid within 5 years. http://www.southerncrosscables.com/public/AboutUs/default.cfm?PageID=43

Why has there been little interest from other parties in building something similar? ISPs complain about the high costs of internation bandwidth, thus high prices for data in New Zealand.

Korida is piggy backing onto the PPC-1 cable goin up to Guam, which is good, but why does no one else make moves like this, given the demand and lack of competition?! It is only only going to cost Kordia $100m to get in on the action. Screw dumping $1.5 billion into FTTH. Creating a million Gb/s connections that then try to get stuffed through SXC's 800ish Gb/s? What a waste of time.

Give us more international pipes at cheaper prices. Enforce open peering to optimise and secure (secure in terms of make robust) national routing. Cabinetise with low contention rates. Then we will be ready for FTTH, and we will be able to afford it from the profits of increased utilisation of technology which still has life left in it.

Surely there should be a business case for at least more transtasman cables, if not ANZ - Asia cables, if not ANZ - USA cables. Paying back many millions of dollars in debt so fast makes for a great return for investers and lenders alike. To me it is just another example of how telecom has NZ's communications wrapped around their little pinky no matter how much noise politicians and PR trolls make.

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Comment by hellonearthisman, on 5-Jun-2008 14:07

50GB = $50, capacity for income over time: 130Gbps

Comment by KiwiOverseas66, on 5-Jun-2008 18:00

the problem is that the build cost is high, the process is fraught with risk, and returns are not necessarily guaranteed. Remember the year that southern cross was finished (2000) the dot.com bust burst onto the market. Worldcom (which was the other partner with Telecom and Cable and Wireless) filed for bankruptcy and to this day, it still rates as the 4th largest failure in US corporate history.

Southern Cross was forced to restructure its debt because under chpt7 insolvency laws Worldcom was allowed to trade its way out of debt - which it did around the world by selling data at rock bottom prices. In some cases that meant below cost - which stretched out the payback period. Eventually - the investment did pay off - but back in 1998 when the project was confirmed it was not a sure thing at all.

Even today - its enormously expensive to be laying high speed fibre optic cable across thousands of miles of oceans at depths that would crush most living organisms, through territories that in some cases are war zones. Last month a deal with signed to build another undersea cable called the EIG - european indian gateway. Its going to take 15 telcos using debt finance to build the thing - and that includes At&t, Bt, and Verizon (not to mention a host of national telcos).

The problem isn't competition I don't think - it raw cost, and having a big enough market to tap into for payback. Remember also that for mature markets like NZ - consumers want services to be as cheap as possible, and that might be backed up with a likelihood of govt intervention, and the market itself isn't about to discover a million new consumers - none of which is "can't miss" attraction for investors.  Here in India - 1.2 billion people and internet connection number something ridiculous like .8 percent of the population. Then there's China with 1.4 billion.

The question isn't so much why there isn't more investment in NZ, - its why the ones who are there have stayed.

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Hamish Goodwin
New Zealand

Have a Bachelor of IT (Hons) majoring in Info Systems. Mainly focused on management in strategy with a bunch of development as well. Now a Capacity Planner in Wellington (No i don't really know what that means either...)

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